BCGelco manufacturing produces and sells oil filters for $3.20 each. A retailer

ID: 2525916 • Letter: B

Question

BCGelco manufacturing produces and sells oil filters for $3.20 each. A retailer has offered to purchase 10,000 oil filters for $3.10 per filter. Of the total manufacturing cost per filter of $1.90, $1.30 is the variable manufacturing cost per filter. For this special order, BCGelco would have to buy a special stamping machine that costs $8,000 to mark the customer’s logo on the special order oil filters. The machine would be scrapped when the special order is complete. The special order would use manufacturing capacity that would otherwise be idle. No variable non manufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order.

Explanation / Answer

Answer:

Incremental Analysis of the special order

Particular

Amount $

Expected revenue from Special Order
(10,000*3.10)

31000

Less: special Expanses

variable manufacturing cost (10,000* 1.3)

13000

Fixed manufacturing cost
(specials temping Machine)

8000

Total Expected Expanses

21000

Expected Operating Income

10000

BCGelco company should accept the special order because it increase the operating income by $10,000